World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Saturday, January 10, 2009

For sure, Wonderful music by wonderful musicians, and yes, it’s a wonderful world!

Now that the tune’s in our heads, Nate’s twisted economic lyrics just seem to flow out smoothly:

I see bills of green, not worth a thing…Mountains of debt, got to have that CorvetteAnd I think to myself… What are people gonna’ doooo???

I see them blue, their faces white…The dark side of debt, and all their sleepless nightsAnd I think to myself… Oh, What’s Obama gonna’ doooo???

The number of the bailouts… plain thievery in disguiseAre also on their faces… the shock is in their eyesI see stimulus for me, massive bailouts for you…The bankers are all sayin… we own you!

I know, “negative Nate” strikes again to throw a bucket of cold water on those who see roses and sunshine, but that’s my job right now, to protect my investments and hopefully help protect yours so that your retirement and financial future don’t get flushed with all the other fiat paper (as happened en mass in 2008).

Right now a huge number of analysts are bullish beyond belief. They cite a basing pattern, washout internals on October the 10th, “cash on the sidelines,” stocks that are seemingly “on sale,” never been a better time to buy, don’t miss out, on and on.

Most of these people have a vested interest in the market going up; realtors, business owners, your financial advisor, the financial industry as a whole, the media, and even our own government. And besides, it’s human nature to be positive. Everyone wants to help, and everyone in the government wants to “fix it,” which is one of the fundamental problems. “Stimulus,” they all say, “is necessary NOW, we’ll worry about the consequences later.”

I read and follow many of the world’s best economic advisors and market strategists, day in and day out. MOST have been completely wrong about the events of the past year and will be about 2009 as well. Even though an advisor has been in the market place for years, if they don’t have the complete picture they will continue to be wrong.

Who has been right? Here are the people who I think have been most correct, there have been many others too, but they have been the most consistent:

Anyone who you choose to call an ‘advisor’ had better have a good understanding of the forces that underlie the market. They do.

There are three facets to understanding any market, they are the fundamentals, the technicals, and psychological. Forget to consider any one, or misinterpret any one and market disappointment awaits you. Yes, it’s great to be optimistic, but the markets do not care one iota about your personal optimism. If you’re going to have a retirement that’s worth anything, it’s time to be realistic, and consider the facts. ANYONE who does not hone in on these three areas, and especially if they do not understand the fundamental situation as I describe below, should be ignored and should not be entrusted to handle your money.

FUNDAMENTALS

Our monetary system is such that all money enters into being as debt. All that debt (all money) carries interest. Our money system is interest bearing, fractional reserve (leveraged), money by fiat (by decree): Huh? Interest Bearing Fractional Reserve Money by Fiat… Doh!. It requires never ending growth, year after year. But the law of exponents causes all that interest to compound upon itself and grow to giant, unsupportable extremes over time.

The greatest credit bubble in the history of mankind was created through the process of debt securitization. What that means is that all the debts were sliced and diced and turned into derivative products. A derivative is simply a piece of paper that represents some other underlying thing – in this case promises to repay debt.

These derivatives were then leveraged up by financial institutions through the use of other derivatives. Thus the entire system became permeated with derivatives of derivatives – gigantic, scary amounts of them. So many, that there’s NO WAY that the people who have promised to pay can. It’s as simple as that, don’t let anyone try to tell you that it’s so complex you couldn’t ever understand – that’s exactly what they want you to think!

The most egregious example is our own Secretary treasurer, Hank Paulson, who as the CEO of Goldman Sachs threw parties in celebration of his sales team’s victories in shoveling off (selling) these debt derivatives all over the world to unsuspecting people, their retirement plans, and their governments. Goldman Sachs, with Paulson at the helm, even turned around and placed bets (derivatives) against the very product they were selling and profited from their demise (have pitchfork?)! Today he preaches about transparency but practices obscuration while asking for your future earnings to bail out his personal holdings and a private central banking industry which should belong to the people in the first place.

Conveniently, our government looked the other way and left the world of derivatives to be completely unregulated, untracked, and unchecked. Collectively, the production of and flow of derivatives around the globe is referred to as the “Shadow Banking System.” That process of securitizing debt grew to parabolic and out-of-control proportions (Spend some Time with the Good Dr. Bartlett…).

An important question to ask is who controls and provides the money that gets the politicians elected? (My MONEY 'tis to thee...)

Now that process of securitizing debt is crashing down the backside of the parabolic curve. Since it was not tracked, no one knows for certain how big it is or how much leverage was deployed. It was huge, and the world of derivatives grew to many times the size of global GDP.

The debts permeated all facets – federal, state, and local government debt; corporate debt; and personal debt. All that debt must be serviced by the same 305 million people in America. It all adds up to more than $300,000 per man, woman, and child. This debt is NOT SERVICEABLE, even at half the present level (Death by Numbers).

There are two and only two ways to pay debt back. It can either be paid back (with interest), or it can be defaulted upon. Our government, with the help and pressure of the financial industry, chose to pass their debts onto the taxpayer. They have simply moved from one bag holder to the next, the vast majority was never defaulted upon which is what should have happened to clear the system. Instead, all the bad debt now sits in the government’s hands, our hands. It has not gone away, and the math will not work until it does.

Many still fear inflation. Inflation is what happened over the past 25 years. It was one of the longest uninterrupted growth periods in history, and most living adults have not known anything but. That certainly doesn’t mean that deflation cannot transpire and that’s why it’s important to know and understand history. Deflation is occurring now and will for some time, despite “quantitative easing” and cash hauling helicopters – Bernanke’s folly.

David A. Rosenberg at Merrill Lynch is an economist who understands history. He just released an article entitled, “Rosenberg - Don’t know much about history: the sequel” which can be found in all its glory here: Don’t know much about history .

I love his title and instantly got another classic tune in my head…

Sam Cooke – Wonderful World (Don’t know much about history):

In Rosenberg’s article, he lays out many things that can, and probably will, go wrong. When they do, the vast majority of industry pundits will be wrong – again. It’s an article worth reading. One paragraph and chart particularly struck me:

Process of unwinding excess credit is very deflationary

As Chart 2 illustrates, this household and business debt/income ratio is still 50 percentage points above the long-run pre-bubble norm. So, it is difficult to believe that we can actually embark on a new credit cycle when the level of outstanding private sector debt remains $6 trillion beyond the bounds of what the economy has traditionally been capable of handling.

Thus, the underlying debt and math must be kept in mind when evaluating anything regarding the markets or our economy.

TECHNICALS

I have written many articles about the technicals, here are two that can help you catch up if you missed them:

The ‘C’ I am referring to in the Voyage to the Bottom of the ‘C’, represents in Elliott Wave terms the third and final leg of an A-B-C correction which is correcting an up cycle which began before America was even born. That puts this correction on a higher order than the Great Depression, a “Grand Supercycle Degree” corrective wave.

According to Dr. McHugh, these Grand Supercycle waves are of the highest order and they are “nation changing.”

The ‘B’ I am referring to in the title of this article is the middle wave of the A-B-C. Wave ‘B’ is the eye of the storm and its motion is up/sideways.

Now, to be honest, Elliott Wave does NOT forecast or predict the future. What it does is eliminate possibilities leaving narrower choices of possible outcomes. One of the outcomes that was eliminated was that this correction is merely on a supercycle degree, that’s because the S&P 500 broke the 2002 lows. Once this occurred, it cannot be ignored or wished away. It happened.

There are several possibilities left from an Elliott Wave position, but most practitioners currently see three realistic possibilities:

1. The peak in the year 2000 was THE peak and the move to the 2002 low was wave A. The bounce to the October, 2007 peak was wave B. And now we are in wave C down. This is my LEAST likely scenario because the peaks in several of the indices were higher in 2007 than in the year 2000 and that is not in accordance with the rules of construction. Let’s suppose that those indices do not count… if that is the case, then we are currently in wave 4 and we have a 5th and final wave down to go that should break beneath the lows of this past November.

2. Wave A began in October of 2007 and we are in wave 4 of A. That leaves us with wave 5 down, same as above. Plus, it leaves us with wave B and all of wave C still to go. This would be the most bearish scenario and it is prescribed to by a number of people.

3. We completed wave A in November, and are progressing through wave B, which will be followed by wave C down beginning sometime early this year. This is what I’ve been subscribing to and writing about although I’m still open to the other possibilities. In the medium term, it doesn’t matter as the next major move is DOWN under all three scenarios. Those who do not understand or prescribe to Elliott Wave are missing this vital piece of the technical picture.

If I am correct, this is where we are in the scheme of the bear market:

Most likely we are either in wave 4 down of wave A (which is either done or about done), or we are about to begin resume wave ‘c’ up of wave B (labeled red (b) on the chart above).

In Dr. McHugh’s latest update he said, “…The third phase will be a plunge characterized by a response to declining corporate and personal income, plunging dividends, spreading unemployment, and perhaps fearful geopolitical events, Supercycle degree wave (C) down, which could start in 2009 and last a year or longer.”

He goes on to say that, “The Great Depression was of Supercycle degree, one lesser than the current Bear Market, which is of Grand Supercycle degree.”

This is a chart of the DOW from 1928 to 1932. Note how the A-B-C unfolded. The decline from 380 to 40 represented a 90% loss of market value. And according to Dr. McHugh this is on a higher level! I will note, however, that doesn’t mean that it will necessarily lose more of its value; that would be hard to do.

Here’s how the current decline compares to past bear markets in a chart that D.S. Short (dshort.com) does called the four bad bears. I note that there are two other bears not shown here that are very comparable to the 1929 collapse and that’s the Japanese Nikkei index from 1990 to today and our own NASDAQ from 2000 to 2003:

There is a lot more evidence that says this decline is not done but will not be covered in the scope of this article. Suffice it to say that I have several long term indicators that can and will signal when the next bull market has begun and they have not been triggered. I place the highest odds of us being in wave B up/sideways and then wave C down should probably last until at least the first half of 2010. And that’s just in equities… real estate will take longer before it begins to gain in value again.

PSYCHOLOGICAL

Obviously there is still much fear. We can see it on television and we can see it in the economic data that shows the consumer is withdrawing. Remember what all the experts said a year ago? That it was all “contained to sub-prime,” and that it would not spill over into the “real” economy? Are people still believing that? No? Do they believe the current mantra that we’ll be turning the corner in the second half of this year? No? Why not, could it be that they were saying the same thing last year and it didn’t come true? Fool me once, shame on me, fool me twice…

So we see a fundamental shift in the psychology, and I believe we’re about to experience another similar shift. People are about to realize that the underlying situation is far more troubling than they could imagine. Unemployment is ramping and corporate earnings are suffering. The shifts in market psychology produce similar responses as going through a dramatic loss, like a death in the family. Here’s what people feel like as they receive their retirement statements quarter after quarter:

The Five Stages of Stock Market Realization (or death) – as explained by a giraffe!

Ha, that giraffe kills me! But all this psychobabble so far is just subjective. We have many objective measurements of sentiment we can use like the put/call ratio, the trin, the VIX, VXO, and others.

To keep this short, I’m just going to say that objective fear levels are elevated but way down from their peak which is expected for wave 4 or wave B sideways market movement. If you would like to delve into detail, I wrote a report about the VIX on New Year’s Eve and it is still mostly valid and has been behaving so far as I predicted here: VIX Analysis.

Oh, I could go on and on, as if this wasn’t enough! I still want to talk about the bond market, P/E ratios (still way overvalued), our currency, what I see as a way forward, etc. And I will, but you’ll have to come back to see those another time. The purpose of this article is simply to let you know where I think we are. Yes, it’s a wonderful world, but our economic mess and stock market decline are NOT over, we’re likely still in wave B.

People are literally starving to death. It’s hard to imagine that the people of Zimbabwe can’t make this type of pain stop. It’s a terrible thing when they don’t have the power to rise up and stop the tyranny and insanity.

HARARE, Zimbabwe (CNN) -- Zimbabwe's central bank will introduce a $50 billion note -- enough to buy just two loaves of bread -- as a way of fighting cash shortages amid spiraling inflation.Zimbabwe's dollar is virtually worthless with foreign currency now being used to purchase basic items.

The country's acting finance minister, Patrick Chinamasa, made the announcement in a government gazette released Saturday.

While Chinamasa did not give the date on which the $50 billion and new $20 billion notes would come into circulation, an official at the Reserve Bank of Zimbabwe said the notes would be distributed to all banks by the end of Monday.

Zimbabwe is grappling with hyperinflation now officially estimated at 231 million percent and its currency is fast losing its value. As of Friday, one U.S. dollar was trading at around ZW$25 billion.

When the government issued a $10 billion note just three weeks ago, it bought 20 loaves of bread. That note now can purchase less than half of one loaf.

Realizing the worthlessness of the currency, the RBZ has allowed most goods and services to be charged in foreign currency. As a result, grocery purchases, government hospital bills, property sales, rent, vegetables and even mobile phone recharge cards are now paid for in foreign currency, as the worthless Zimbabwe dollar virtually ceases to be legal tender.

Once a regional economic model, Zimbabwe is in the throes of an economic crisis, with unemployment running at more than 80 per cent and many families unable to afford a square meal. President Robert Mugabe's critics blame his policies for the economic meltdown but he in turn says the West is sabotaging his efforts.Don't Miss

In order to attract foreign currency, Zimbabwe's central bank has, since September, licensed at least 1,000 shops to sell goods in foreign currency. All mobile phone service providers are now licensed to accept foreign exchange for airtime and other services.John Robertson, an economist in Zimbabwe, said he's puzzled by the introduction of the new $50 and $20 billion notes.

"I am not really sure what these notes would be for," he said. "No one now accepts the local currency. It is a waste of resources to print Zimbabwe dollar notes now. Who accepts a currency that loses value by almost 100 percent daily?"

In August last year, the RBZ slashed ten zeros from the currency. But the zeroes have bounced back with more vigor.

It was just December 20th, 2008 that Zimbabwe introduced the $10 billion note: CNN article. And it wasn't very long ago that the world was shocked when they were producing multi-MILLION dollar notes, now it's multi-billion dollar notes.

Yes, the United States is in far better shape than Zimbabwe… for now. We are currently headed in the opposite direction from a monetary perspective – while Zimbabwe is experiencing massive hyperinflation, we are experiencing deflation… for now.

Throughout the history of the world, no fiat currency has EVER stood the test of time – ALL have failed.

Cause of death?

It is almost always inflation, NOT deflation. Deflation is usually the healing process at work, BUT when never ending STIMULUS is provided to fight deflation it can turn into inflation – later. Please consider that Government Spending Makes Recessions Worse.

Then again, never ending STIMULUS during a credit collapse only makes the math worse when the entire economy is already SATURATED with debt (Death by Numbers). The end result may not be hyper-inflation, it may very well be a monetary RESET of some type. These have happened many times throughout history and, in fact, several times in the history of the United States (My MONEY 'tis to thee...).

It's a confusing issue because people still have the inflationary mind set. They have seen our own budget numbers grow just recently from talking billions to talking TRILLIONS.

Does our country’s leadership understand what’s happening to our own monetary system and economy any more than Zimbabwe’s leadership understands how to fix theirs? When does this type of insanity stop? When WE make it stop, or when the system collapses, the choice is up to US.

Okay, that sell off into the close was special… and profitable! I almost chickened out on the last ramp, but held on until about 3 minutes prior to the close and sold my short positions within 1 point of the low! I go into the weekend short TLT, short some names in the CRE sector, still short some HOG, and I have one speculative long as a hedge. That’s a little more than I’ve been doing lately, but it’s working, so this week I started to play a little more.

For the day, the DOW finished down 143 points (1.6%) which is well beneath its 50 day average, the SPX was down 2.1% ON its 50dma, the NDX fell 2.4%, and the RUT fell a whopping 4.1% to lead once again, but still managed to close above its 50dma as did the NDX. Notably, the transports lost 2.7% and did close beneath the 50.

Declining issues outnumbered advancers by more than 2 to 1, new 52 week lows came up but are still relatively low, and I have just a hint of positive divergence on my oscillators at the end of the day. Also the percent of issues above their 5 day average is zero or close to it which is bullish, although it can stay that way when selling off into oversold conditions.

Let’s start by revisiting the 3 month VIX chart. Note that it looks like we have completed wave 3 down after having found support like I mentioned would likely happen in my latest VIX analysis (VIX Analysis), and since we broke the down trendline, it would appear that this is possibly wave 4. If there is a wave 5, it would probably take us below the mid 30’s and would be concurrent with the last rally up as a part of wave ‘c’ up of ‘B’ up, although, note that the slow stochastic has just come up off the bottom of the chart and has a long way to go:

Here’s the 20 day, 20 minute SPX chart, notice that both the bear flags broke down in the correct direction. The second flag has a target of 875 but did not get there before the close. This close is something special, it’s EXACTLY on the 50 day moving average and the 61.8% retrace. A launch is a distinct possibility on Monday as closes on important levels like that often produce large movements:

The stochastic is on a buy on the weekly w/room, on a sell on the daily w/room, and oversold on the 60 and 20 minute (but can stay that way).

Here’s the SPX one month daily. Closed just a whisker above the 50dma and right on the 61.8% retrace – that’s a dangerous close. Note the sell signal on the stochastic:

Here’s the DOW daily. It got beneath the 50 and the 61.8% retrace, has a sell on the stochastic, but is declining on falling volume (volume was HIGHER on the DIA and SPY). That lends credence to this still being wave ‘b’ down of ‘c’ up. However, the fact that both the industrials and transports failed to stay above their 50dma’s is bearish:

Next, let’s examine a 6 month weekly chart of the DOW (the others are basically similar). I turned my drawings off so that you can see it clearly. Note that this week was a big down week on RISING volume. However, it was an inside week, staying within the confines of last week’s candle except for a small attempted breakout the top which obviously failed. Note how 9,000 has become stiff resistance and just look at that trading range since October! Flat as a board for the past 3 months! I don’t know, that looks an awful lot like what you would expect for a wave 4… hmmm. The debate amongst Elliott wave experts is whether this sideways flat is a wave 4 or the larger wave B. I don’t know for certain, and I’m not sure it matters as in either case the direction out of the flat should eventually be down. Note on the chart that we are still on the weekly buy signal:

Since I rarely get out the long term charts, let’s look at a 5 year MONTHLY chart of the DOW. Look at that, a close right on top of the 200 MONTH moving average. It’s also right on the lower Bollinger band which is pointing nearly straight down. Note that the volume has been falling in the flat which looks more like a triangle here and is what you would expect. I would expect the volume to pick back up on a break of the range. Also note the stochastic indicator; it got real close to a buy, but the fast has now turned down again just under the slow:

Here’s the same conditions on the SPX. Note that we are still well beneath the 200 MONTH moving average, and here too the bottom Bollinger is pointing straight down, and the stochastic is still on a sell with my settings:

Lastly, let’s look a 5 year WEEKLY chart of the SPX. Note the bearish cross of the 50 and 200 week moving averages, and note that the 200 week average is now descending – a very rare thing to see, not to mention how far beneath it we are. Another very unusual thing to look at here is the spread in the upper and lower Bollingers. See how the top has curled down? A rising market would run right into that and it would put a lid on it real quickly with that angle of descent. And look at the bottom Bollinger, it has just turned up slightly, but if the market goes down it would rise to meet it. Look at the level of it though! It’s all the way well beneath the 700 level and on this chart a descent here would have a lot of room to run:

So, overall still very bearish in the long run. We are oversold in the short run and may have a little upside due to that on Monday, but in the medium term I’m still somewhat neutral. Until we break the range we’ve been in it’s hard to get too excited one way or the other, but just a reminder that we’re entering earning’s season and that may provide impetus. Also a reminder that next Friday is options expiration so expect IV crush on any front month positions. Lastly a note that most of the indices on the P&F charts gave “high pole warning” signals indicating that they are close to reversing their positive breakout and targets.

The usual 11:00 rally came through and ran the market back up to the SPX 900 area which should now be fairly strong resistance. Here’s a 5 minute SPX chart. I redrew the bear flag to be a little larger but the top line has contained it so far:

Volume is light and the XLF refuses to break higher. The rest of the indices will have a tough time going higher w/o the financials. The VIX, however, has not been rising and that’s a little bit troubling if you’re heavily short. I’ve been playing with a few positions today but will be going out mostly flat with a few short positions and a few longs as well.

I began scaling into TLT puts today, and think this is another play that’s going to pan out, but it may take awhile.

And here’s the 12:08 selloff coming… lol, the low volume and XLF were the give aways…

The market's been paused in between the S&P 890 and 895 level. The XLF is leading down again and is working its way lower. If 890 breaks, we are likely headed to the 878 or even 870 area which is quite a ways down. This is looking more and more like a bear flag, and if so, the area just above 870 would be the target. Below is a 5 minute SPX chart. If it were to break upwards, it would probably come quick, but the action today doesn't look bullish, although the VIX is not rising a commensurate amount so there are mixed signals here again:

I didn't mention it earlier, but yesterday produced a small movement on the McClelland Oscillator which means that a large price move is coming today or tomorrow. One hundred points off the DOW is large, but it may not be large enough to fulfill this.

The short term oscillators are still oversold, be careful with open positions.

I’m going to recommend a couple of Mish’s articles… I STRONGLY recommend that you read them both and wrap your mind around both the employment situation and stock market valuations. His take on Price to Earnings ratios (P/E) is the correct one. Do not believe the usual claptrap about stocks being on sale, they’re not.

Again, these are two important articles (his site takes a while to load, be patient):

Boy, did I ever nail this pig! Down another 10.3% already this morning. That’s why I kept the remaining 1/3 of my position. Could I have done better by holding all of it? Of course, but it’s all about money management and risk.

Here’s a chart showing the daily on the left and the 5 minute chart on the right. This move has shaved nearly 20% off HOG’s value in the past 3 days. That’s a tremendous move and play. Note that we are about to touch the 100% retrace of the last move up. It will probably find support in here. I may take a little bit more profit here, and maybe just keep a few option contracts open just for fun, but I do not want to let that profit disappear if the market were to ramp. It’s better at this point to take the capital and find the next target, that’s my thinking, that was too much of a move too fast and I don’t want to let it slip away.

I hope you had fun with that play, I did, that’s fun when they work out so well. I may revisit this and will be watching to see if it bounces here off support or gets through it. If the market is going to move down significantly, then HOG will likely continue to go out with the tide.

Markets dove after the open… the DOW is down 120+ and the SPX just pinned the 890 area. That’s a very important level, it’s where the 61.8% retrace and the 50 day moving average are located. Here’s a 20 day chart:

And here’s the daily, note the sell signal on the stochastic. I have my slow set pretty slow, so this cross came slower than others that I track. You can see that we have already engulfed yesterday’s candle:

TLT moved up to fill its morning gap as equities sold off. Perhaps it will remain in this range a little while longer, but I began scaling into short positions here regardless, but just a small position to begin with. We’ll see, that 3 peaks and a domed top chart pattern are talking loud and clear… Here’s a 6 month chart, you can clearly see the 3 peaks, the ramp and the domed top. This is a classic parabolic chart, one that says there is downside coming here. Also note the volume pattern… during this latest move down volume was increasing and now that it’s leveled off in the 112 area the volume has fallen off. Watch to see if the volume picks up on a break lower, that will be a sign that we’re headed back down and interest rates are headed up. That would be a bad deal for equities.

Well, I said earlier in the week that today’s report would be “buy the news,” and that’s exactly what just happened.

Futures, however, were down pretty heavily last night and only managed to make it back to about level so far.

The unemployment rate of 7.2% was pretty ugly while the headline number of 524,000 was inline with expectations, but less than some of the whisper numbers on the street. The BLS’s performance is just plain insulting. They revised their October number upwards by 32%! How bad would this month’s number be with the same revision? Ugly. Our government reports are just embarrassing, are near worthless, and are definitely NOT comparable to figures from the past. Perhaps when we reach the bottom of wave ‘C’, we’ll give some thought to creating some honest and un-manipulated data.

I think this may be a good short opportunity in here somewhere today once the short term oscillators work their way a little higher. Keep your eye on the 60 minute stochastic, right now it’s just coming out of oversold, but remember that it can remain oversold too. The daily stochastic is on a sell and has a way to go.

Here’s my chart of the day… it’s TLT on the 10 day timeframe and it is clearly breaking down out of a wedge. I tried to get short TLT yesterday, but had computer problems and didn’t get the darn thing. I’ll get it this morning, though, as I’m beginning to think more and more that we are witnessing the beginning of the bond market unwind.

If you have a lot of money parked in bonds, you may want to consider temporarily keeping it in some sort of an FDIC or SPIC insured cash account or money market while this move is ongoing. Make sure you stay under their limits and remember that the FDIC temporarily rose their per account limit to 250K.

I’ll keep the updates coming, have a good day,

Nate

LOL! The market opened before I could post this and here’s a chart showing how long the BLS pump lasted… Not long! The DOW is currently off 50 points…

Unemployment Jumps from 6.7% to 7.2%. There were 2.6 million jobs lost last year according to the Labor Department and that is the worst showing since 1945. The reaction in the market? LOL, I knew they were expecting bad, but I can only laugh when I see this type of stuff… guess when the release came out on this chart (DOW futures on left, S&P futures on the right):

Anyway, the 524,000 number wasn’t nearly as bad as some feared, but remember, this number is subject to the BLS’s manipulation, is not tracked anything like how it used to be, and thus if calculated the way it was in 1945 would be much, much larger.

The change in total nonfarm employment for October was revised from -320,000 to -423,000, and the change for November was revised from -533,000 to -584,000. Monthly revisions result from additional sample reports and the monthly recalculation of sea-sonal factors.

Come on, that's a 32% revision for the month of October! you cannot trust any of their numbers AT ALL!

Here’s John William’s chart from Shadow Stats. It’s not updated yet, but it will update automatically once he inputs the data, so check back to see the numbers how they would have compared:

Total 2008 job loss: 2.6 million

Payrolls shrink by 524,000 in December. Unemployment rises to 7.2%.

By David Goldman, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Yet another sobering government labor report released Friday showed the economy lost 524,000 jobs in December, bringing 2008's total job loss to 2.6 million.

Last year's steep drop in employment marked the highest yearly job-loss total since 1945.Economists surveyed by Briefing.com had forecast a loss of 525,000 jobs in the month.

According to the Labor Department's monthly jobs report, the unemployment rate rose to 7.2% last month from 6.7% in November and higher than economists' forecasts of 7%.The unemployment rate, which is compiled in a separate survey from the payroll number, was at its highest level since January 1993.

The vast majority - 1.9 million - of last year's job losses came in the final four months of 2008, after the credit crisis began in September. November's job loss was revised up to 584,000 from 533,000, and October was revised up to 423,000.

Thursday, January 8, 2009

Our economy’s function is to direct capital, that’s money, labor, and natural resources, in such a way as to benefit society’s goals. From that perspective, spending a couple TRILLION on the nation’s power grid to digitize it and to turn it into a “smart” grid seems like a brilliant idea – the good. Unfortunately, while this is a FAR BETTER use of funds than throwing money at bank robber barons (the bad), it’s still spending money that we do not have – the ugly. And, as you will find out if you read the linked article, it will take billions just to repair the existing infrastructure… the ultimate price tag for a fully modernized smart grid? It’s just a little bit more expensive than a couple of measly billion; it is approaching $2 trillion!

THE GOOD

First let’s talk about the good aspect of a smart power grid. As envisioned, a smart system would communicate through its lines to everything that’s plugged into the grid, right on down to every appliance in your home. That way power could be better matched to demand. Power lines carry alternating current, but at the same time they can also carry digital information. The UK has a company that helped to develop and already provides internet service over power lines (NORWEB, North Western Electricity Board), so that technology is getting pretty well understood. Here’s how it works: http://www.explainthatstuff.com/broadbandoverpowerlines.html. In fact, there are companies trying to push for this in America, Google is among them Article; Broadband's power-line push.

A new grid would also be more efficient. Larger cables would be strung and that could provide about a 10% bump in the efficiency of carrying electricity across large distances (which is another topic of debate as the grid could be decentralized vs. our current centralized system). More capacity will be needed if we remain centralized, especially if we’re going to make a push to electrify automobiles, which, in my opinion we should. There are huge leaps being made in electrical technologies and we need to be putting our efforts and resources there, not into more of a petroleum based economy. This is one arena where I would argue that the market is not free – the oil industry is too powerful, they exert too much influence over our political system. Their influence makes a good argument that corporations should be separated from all forms of influence over the state.

Here’s a link to a CNN article that came out today and stimulated my thoughts about the power grid proposal:

A $2 trillion bet on powering AmericaThe stimulus plan might jump-start investments, which could drastically change how we use electricity.CNN article, A $2 trillion bet…

In Jim kunstler’s “The Long Emergency,” he sees the petroleum based suburbia economy coming to an end. I’m NOT so pessimistic, I believe that electric transportation IS RIGHT AROUND THE FIGURATIVE CORNER despite the petroleum industry’s attempts to thwart this. The technology is on the verge of becoming compelling, even with modest oil prices. Advanced super capacitors that use new carbon nanotube technology and new batteries are making huge breakthroughs, while at the same time our ability to control power and make electric engines smaller, lighter, and more powerful is on an exponential curve. That’s why Boeing went with electrical actuators for their flight controls on the 787, they also replaced most hydraulic and pneumatic systems with electrical ones as well. That’s the future, real progress is being made in this field.

Another mind blowing technology is the advancement in electrical flywheel technology. These flywheels can store energy and deliver it back almost instantly for short burst applications and acceleration Link – Flywheel energy storage. A Bellevue, Washington company, AFS Trinity Power Corporation is leading in this field. They have been involved with flywheel technology for uses in space, in powering trains and busses, and using them as backup power sources for the power grid. Now they are using super capacitors and electrical management to produce electrical/hybrid SUVs capable of getting 150 mpg. Exciting stuff! Here’s a link to their site if you’re interested, be sure to dig into their other work besides auto technology – AFS Trinity Power Corporation.

A few years ago, I couldn’t get the concept out of my head of using all this electrical technology to make the world’s first truly high performance and SAFE flying automobile, so I filed a provisional patent on the combination of technologies and how they could be used and put the basic information on a website and you can view it pictorially here: Avicar Aerospace, or read about the basic concept here: Avicar Aerospace introduction.

I only post this information to stimulate thought, this technology would cost billions to develop properly and funding this type of innovation will certainly not come in this environment. There’s a lesson here!

THE BAD

Although technology is developing very rapidly, during the past decade massive amounts of human effort were misallocated towards “financial” innovation. Instead of funding derivatives and over inflated home values, our money system needs to provide funding to innovative and promising new technologies and manufacturing capabilities that can make it on their own. Yes, sometimes government money is needed to move technology forward like how we used to spend money on Aero engineering through NASA but no longer do.

This country built amazing infrastructure; roads and bridges, dams and electrical distribution, airports and air traffic control, water systems and reservoirs, waste disposal, mail, etc. These WERE great systems in their day, but they are aging and require great sums of money just to maintain them. Money we do not have.

That’s one of the problems with owning anything, you must maintain it and your revenue had better be big enough to do so or you’re in trouble. In our case, we used our infrastructure to build other great industries. Now many of those industries are gutted shells of their former selves.

What happened? Free trade for one. The people who control the money and promoted free trade could care less where the production takes place so long as it’s cheap. Hey, that’s cool as long as it’s a level playing field for everyone, but it’s not. Wage arbitrage and overseas competition sounds great, but the fact is that “pulling them up” brings us down. Over the past decade our greatest exports are "financial products" (time bombs) and debt while we import cheap goods from overseas and pay with money that’s truly not backed by anything more than an empty promise.

Now all that’s left is to attempt to print our way to prosperity, and history shows that NEVER works.

I think a lot of this boils down to leadership. Our national priorities have not been effectively mapped out or presented. Of course the root of that problem is our money system that allows corporate influence to dominate politics. This is backwards.

The current dilemma and reality is that we are up to our eye sockets in debt, and that means that we have already spent FUTURE tax income, just as being in personal debt means that you have spent your own personal FUTURE income. Since ALL our future tax income has already been spent, how do we pay for what should have been proper uses of money now?

Infrastructure on the scale being discussed will not pay for itself, sorry. Two Trillion dollars represents approximately $30,000 of additional debt burden for every family of four in America. Remember, all the debts, governmental (Federal, state, and local), corporate, and personal ALL ULTIMATELY GET SERVICED BY THE SAME 305 MILLION PEOPLE. And actually the number is much smaller than that when you consider that over half the jobs in America are either directly or indirectly tied to the government. That leaves less than half the working population to support all the debt, and that math has already stopped working - Death by Numbers.

Those who think that we can do it all, like Obama, are mistaken, they do not understand our money system, debt, capital flows, or how the math works. Our debt based money system depends upon people, both here and abroad, to finance our debt. Debt must be serviced from somewhere. In the case of our government, that somewhere is taxes, and Americans do not have the capacity to pay even more taxes when they are burdened by excessive tax and debt already. Inevitably spending big money on infrastructure now will lead to printing/monetary easing. This will eventually destroy global capital flows and we may be at this point already.

THE UGLY

During the Great Depression, New Deal spending came at a time that had far lower taxes, less government, and less personal debt. My own father worked in the CCC camps during this time building our nation’s park infrastructure which has been a national treasure now for decades. However, unemployment in the 30’s did not recover and by the time WWII started unemployment was still running at 17%, and did not recover until the war “equalized” the employment picture – think about the ways in which the war did that, it's sobering.

Below is a chart of unemployment during the 1930’s (keep in mind that modern media reported figures do not compare to figures during this time period):

Here’s a modern day chart showing the striking and dramatic difference between reported unemployment and how it used to be calculated (courtesy of Shadowstats.com):

My father joined the Navy one year before Pearl Harbor was bombed and was at sea almost the entire duration of WWII. It was one year after the war that he became a civilian, went to the University of Washington and became a businessman. Note the time relationship here… Stocks first crashed in October of 1929, then the bond market dislocated, all along there was stimulus spending via public works projects, Roosevelt created the New Deal from 1933 to 1936, and a decade following the stock market crash in 1939 WWII began. If you look further back in time, you will find the same sequence repeated over and over following times of economic upheaval.

What did the war bring us? A bigger military, a bigger military industrial complex, more deficit spending, and an expensive world wide infrastructure to maintain. Today, we spend more money on our military than the rest of the entire world combined.

Chalmers Johnson – 6 minutes

According to Chalmers Johnson, this progression is typical of empires who are nearing the end of their dominance, and he’s one of the world’s foremost experts who has worked for the CIA, for years as a university professor, and is the author of 3 terrific books on the subject.

Yes, new technology and infrastructure are terrific, BUT... We must be able to finance it, and it must pay for itself over time. Stimulus, by itself, is not a valid reason to assume more debt and yet infrastructure spending seems vastly more worthy than propping up banks and failed companies.

Right now there’s a standoff between the need to spend more on the good; our impossible debts are the bad that prohibits us from investing in needed infrastructure; and the ugly are the likely outcomes of reckless spending and never ending stimulus.

Will spending on the good compound upon the bad, leading to the ugly? Watch to find out:

The Good, The Bad and the Ugly

Perhaps Bernanke didn't catch Clint's line: “You see there are two kinds of people in this world… those with loaded guns and those who dig.”

For the day the DOW closed down 27 points, the S&P was UP .34%, the NDX was UP 1.1%, and the RUT was up 1%.

We’re being held up by support in the S&P 900 area, giving the oscillators time to work. Here’s a chart of the 10 minute SPX, note that we created a sideways flag. This could be a wave 4 move, it’s not clear because it’s a little difficult to count down from the top, but that’s what it looks like and I can count it that way off of the 944 peak. If so, tomorrow will see some down action, but it would have to get through that 900 area first. Note, too, that the stochastic on this timeframe is overbought, so is the 20 minute fast, but the 60 minute slow is still oversold, so there’s mixed signals there.

Next let’s look at the DOW one month daily. There’s a red hammer on lower volume that failed to get through the 50 day moving average. On the DIA chart it’s even more distinct, and on lower volume. The 50dma is also curling up pretty good, that makes it’s support more powerful, and that is now true on all the indices.

The NDX and RUT look pretty strong, but the weak looking one is the XLF. Here we see even volume and a spinner. Not a bullish looking chart. Again, if the entire market is going to sustain a rally, the XLF must go along for the ride.

IYR was weak, finishing down .4% after pinning the 50dma and bouncing. SRS rose on lower volume.

Internals were mostly positive and we produced more new highs on the NDX than new lows. The VIX finished down 1.9%, but is still above 42, and TLT finished sideways/down just a little.

It’s hard for me to be real bearish at this point looking at the charts. It could very well be that yesterday and today was wave ‘b’ of wave ‘c’ and we’re about to head higher, but I still wouldn’t bet on it either way ahead of tomorrow. I think a lot will depend on the employment report in the morning and how it’s perceived. I’ll bet that whatever happens it will make the direction for next week a little more clear, that’s why I’m sitting on my hands for now, the picture is not clear yet, and that’s how I would sum up the day.

BTW, HOG finished up 1.3%, here’s a one month daily. You can see that the 50dma held again here, but it was on lower volume and the stochastic just issued a sell on this time frame:

Federal Reserve says borrowing by consumers fell by $8 billion in November, falling at a much faster rate than had been predicted by economists.

By Ben Rooney, CNNMoney.com staff writerJanuary 8, 2009: 3:23 PM ET

NEW YORK (CNNMoney.com) -- Consumer borrowing decreased sharply in November as the weak economy continued to weigh on household budgets.

The Federal Reserve said Thursday that consumer borrowing fell by $8 billion in November to $2.571 trillion from an upwardly revised $2.579 trillion in October.

The annual rate of consumer borrowing fell by 3.7% in the month. In October, the annual rate fell by 1.3%.

Credit card borrowing, or revolving debt, declined at an annual rate of 3.4%. Non-revolving borrowing, including student and auto loans, fell $5.2 billion dollars, or 2.1% on an annual basis.

Economists were expecting consumer credit to have remained unchanged in November, according to a consensus of economists' estimates gathered by Briefing.com.

No kidding? Less than expected? By whom? that was an all-time record decline. Once again, it’s hard to get inflation out of that, and remember that these figures do not fully reflect the total collapse of non-consumer credit generated by the Shadow Banking System.

Jan. 8 (Bloomberg) -- Investigators searching the office desk of Bernard Madoff after his arrest found about 100 signed checks, totaling about $173 million, ready to be sent to family, friends, and employees, prosecutors said.

Unbelievable that Madoff’s not locked up with Bubba! He deserves much worse than that, he has wreaked far more damage than a bank robber, yet the greatest thief of all times (next to Paulson and his gang) is allowed to remain in his luxury apartment. Sick.

(RTTNews) - President-elect Barack Obama's full-court press to boost his plan for economic stimulus will continue Thursday, when he will warn that without drastic government action "a bad situation could become dramatically worse."

According to excerpts of the speech released by the Obama transition team, the president-elect will warn that "If nothing is done, this recession could linger for years." The economic stimulus needs to be passed swiftly Obama said, painting his pleas with a sense of deep urgency.

"For every day we wait or point fingers or drag our feet, more Americans will lose their jobs. More families will lose their savings. More dreams will be deferred and denied" he warned.

"And our nation will sink deeper into a crisis that, at some point, we may not be able to reverse," Obama added.

Such a dire outcome includes unemployment above 10 percent, a GDP over $1 trillion below its full capacity, the inability of Americans to afford college, and the loss of the U.S. economy's "competitive edge" and global standing.

Obama simply doesn’t get it. The math doesn’t work (Death by Numbers) and he is sacrificing our freedom and security with this type of backassward thinking (My MONEY 'tis to thee...). At some point people will be forced to acknowledge that is the STIMULUS that will ensure a depression, not avoid one. When will that day of recognition come? Soon. Unfortunately, the drug addict analogy works – we won’t acknowledge the real problem until we’re lying on the floor, and we’re getting close to that time now, thus recognition will not be far behind now.

Here’s another one that defies all sense of free markets and will ultimately end very badly for all of America:

The incoming Obama administration is proposing a coordinated effort by the Federal Reserve and the U.S. Treasury Department to provide a funding backstop for the $2.7 trillion municipal-bond market.

The clogged market, in which all issuers but the most creditworthy have had difficulty accessing funds, has been clamoring for such a move.

The backstop being advanced calls for the Fed and the Treasury to design a facility similar to the program set up for the commercial-paper market that has helped ease financing conditions for U.S. companies in need of short-term funds.

"The Federal Reserve should determine whether it has sufficient legal authority to establish such a facility on its own," according to the official transition team Web site, http://change.gov. "If not, it should work with Treasury and the Congress to achieve this goal.

Why would protecting municipal bonds be necessary? Because the government stimulated their way to a bubble economy and now the math no longer works. Municipal revenues are falling while their expenses are climbing. Municipal defaults are coming, that’s why.

…But Obama’s actions, like those of all the Keynesian stimulus proponents are simply acts of desperation!

Just a quick note that the markets moved lower but failed to gather momentum on the down side. The DOW threw a pin through its 50 dma and touched its 61.8 retrace line but the S&P failed to touch either during trading hours and have now bounced upwards as Obama is speaking. Even though he doesn't get the math, the market seems to react positively when he speaks - so far... they'll get it sooner or later.

This is a critical area, I won’t touch it myself unless the 50dma’s fall. The short term oscillators just produced buy signals, so we may have to chop around for awhile before making another run at the 50dma if that’s what we’re going to do. It may not be, it could be that we move higher, so I am cautious in both directions while we’re in this range. Below is a one month daily of the DOW, you can see how it pinned the 50dma:

The XLF has moved a little higher and is now in positive territory while at the same time the RUT is leading and in positive territory as well. So, the move does not look impulsive on the down side, but I don’t see anything to cheer about on the long side either. Sorry, the market not collapsing on bad news does not convince me to throw my money at it, thinking like that is extremely dangerous from my perspective.

Also positive here is that the VIX did not maintain its advance and is now slightly negative on the day.

HOG made a nice move lower this morning but has bounced also. I only hold 1/3 of my original position and plan on holding it for a few days to see if we get follow through on the down side .

Overall sitting on my hands here and being patient while I work on a couple of articles. Look for them soon.

Futures are lower again this morning, the DOW was down by more than 100 points, but is coming back just a little now, while the S&P took a run at 890 and is currently at 898 on the /ES, down about 8 points. Those are important points because it managed to break strong support at 900 overnight. The 890 level is now very important, it’s where the 50dma and the 61.8% retrace line of the latest advance coincide.

The weekly initial unemployment claims number came down by 24,000 to 467,000 for last week, BUT the continuing claims, the total number of people receiving benefits, jumped to 4.6 million, the highest level since 1982. That number is also the number that is less manipulated. Tomorrow’s monthly employment report is the most manipulated by seasonal adjustments, the BLS’s death/birth model and so on. Be careful assuming that the report will be bad, I think that’s already assumed after ADP’s report yesterday.

Wal-mart, the GAP, and Macy’s all warned about their sales over the holiday season, and Wal-mart said that they are going to miss their earnings estimate. That is a major blow to the retail space, most people were assuming that Wal-Mart would lead. Yet another example of how the stock market is not correctly priced for the true underlying economic conditions.

The Bank of England slashed their interest rates by another .5%, and took their bank rate down to 1.5%. Now you would think that would weaken the pound and make the dollar stronger, but in fact, the dollar is down pretty substantially this morning and gold is up.

Bonds are generally up in price/down in yield this morning, TLT is mostly flat with its close yesterday, however.

Financials seem to be a key to the market still. The XLF’s failure to break the 50dma was very significant. This morning many of the financials are down and the XLF is down further as well.

Today’s a very important day overall. We have now gone down to the 61.8% retrace level, close to the 50dma, and have so far bounced. We are oversold on the short term oscillators and that is providing a little support here. It seems to me that this is pretty much do or die in this area and I think using the 50dma as a short or long entry spot is a good idea, as long as you exit on a break that goes against you. Personally, I don’t like the long side for anything more than a possible scalp as the daily stochastic just issued a sell signal yesterday and thus we probably have more sell off coming in the days ahead. But again, we must get through the 50dma first which right now is at 889 as you can see in the SPX chart below:

Keep an eye on the VIX to see if that is a false breakout or if it's real. If it continues higher today, there's a big clue for us.

That’s about all I have, except another caution not to buy the media hype and B.S., I already see that CNN is running with a headline that says jobless claims fall sharply! I love the bias, the fact is that the media and most people are biased to be positive, and at the same time people are complaining that the media is being too negative about the economy. NO, they are not, they are still far too positive; people who are realistic about the economy do not get a commensurate amount of air time. Remember who owns the media and what their interests are!

Wednesday, January 7, 2009

Just want to point out that the DOW has broken support on the P&F chart and has produced a target of 8,400. The rest of the indices have NOT broken down yet.

I also note that the dollar index is making an interesting formation on the P&F chart, almost looks like a triangle. Up or down, that is the question… the target is now down, but if equities do what I think they will, the dollar could very well break this to the up side.

Lastly here is a candlestick chart of the VIX that clearly shows a broken trendline after finding support in the mid 30’s like I said it would here VIX Analysis. The P&F, however, does not show this as a breakout, target is still 20, and you can see that when you look at the P&F it looks even less bullish.

Jan. 7 (Bloomberg) -- German billionaire Adolf Merckle, whose family holding company amassed about 5 billion euros ($6.7 billion) in debt, committed suicide as bankers proceeded with a plan to start breaking up his business empire.

A bridge loan to the family is in place and Merckle’s death on Jan. 5 won’t affect that funding, three people with direct knowledge of the loan said. They declined to be identified as they’re not authorized to comment. A condition is that banks will take over the Merckles’ majority stake in HeidelbergCement AG, the largest of the family assets, and sell the drugmaker Ratiopharm GmbH, two of the people said.

Merckle, whose estimated $9.2 billion fortune put him 94th on Forbes’s list of the world’s richest people, committed suicide by stepping in front of a train, “broken” as his business empire crumbled under the growing burden of debt, his family said. He had been negotiating emergency financing after the value of his HeidelbergCement stock plunged and bets on Volkswagen AG soured, leaving his companies short of cash.

“Merckle didn’t have any more options to turn around his companies,” said Stefan Mueller, managing partner at Proprietary Partners AG in Frankfurt. “This is very tragic.”

CHICAGO, Illinois (CNN) -- One of Chicago's most well-known real estate moguls appears to have shot himself to death, police said.

Steven Good was found dead of an apparent self-inflicted gunshot Monday, police said.The body of Steven L. Good was found in his Jaguar on Monday. The car was spotted in a parking lot of a wildlife preserve in Kane County, Illinois, just outside Chicago, authorities said.No note was found, and police say they do not know how long the 52-year-old had been in the vehicle.

Good was the chairman and chief executive officer of Sheldon Good & Co., a major U.S. real estate auction company.

The death comes amid great turmoil in the country's real estate industry. In his role as chairman of the Realtors Commercial Alliance Committee, Good commented on tough conditions last month at a business conference.

On a memorial blog set up by the Chicago Association of Realtors, for which Good once served as president, friends and colleagues described him as a gregarious man with a big personality. He was a savvy businessman who built his company into a major national real estate company that did deals with Donald Trump, they said.

No disrespect intended, this is a serious tragedy. No one should be put in the position of self despair over the failings of leadership and a broken monetary system. It’s of our own invention, after all, let’s fix it!

It’s been a while since I’ve “seen” a day as clearly as I saw this one, both with the overall market and with the plays I had going, like HOG.

The DOW finished down 245 points (2.7%), the SPX finished down 3% with the /ES pinging right off the 900 level, the NDX finished down 2.8%, and the RUT lead the way again while losing 3.4%.

Fundamentally it would seem that everyone is worried about jobs. The weekly update comes tomorrow and the monthly on Friday. Now that the ADP report has scared everyone, this COULD turn into a BUY the news event?

So much for DOW 9,000! Is the selling done for now? That sure is a monster red candlestick, it closed just a whisker below last Friday’s open basically engulfing the past three days, and note the HIGHER VOLUME on the day. Volume confirms price, and look at the daily stochastic and RSI roll over out of oversold:

Basically the same picture on the SPX, but it did manage to close above last Friday’s open. It landed right in that 900 area which is strong support, so I would expect at least some retrace tomorrow, probably before resuming the move lower. The 890 area would seem a likely destination if this is a wave ‘b’ retrace, that would be the 61.8 retrace and it’s at the 50 day moving average. Break 890 and we’re probably doing something other than wave ‘b’ of wave ‘c’, but a move down to 870 wouldn’t be out of the question either.

The XLF was a disaster, losing 5.2% and rejecting solidly beneath the 50 day. No way the market’s moving higher unless the XLF can get above, and stay above the 50dma. I note that today was on slightly lighter volume here. (I also note that the DIA and SPY were also down on lighter volume).

Here’s another one to watch, the transports. It lost over 4% today on higher volume and looking like there’s lots of room below:

TLT is an enigma, but it’s looking very much like the classic bubble formation “3 peaks and a domed house.” Google it to learn more (basically the right side will initially mirror the left but then turn into a parabolic collapse). If that’s what’s happening, we should make a right shoulder here for a couple more days and then move lower. If you remember, I got short very near the top, but stepped out of that position. I plan on re-entering soon, probably early next week. The “boys” (and I mean that as in children) over at the Fed had better hope that’s not what’s happening, because if it is, money is not leaving bonds just to be hanging out in equities, it’s getting the hell out of the way of the insanity at the Treasury department. And if that’s what’s happening, we’ll be watching rates go up and equities will eventually take the next leg down. That IS EXACTLY what happened during the great depression which Bernanke is trying so desperately to avoid and is so unwittingly helping to create.

Let’s look at HOG once again. I played that about as perfect as can be… scaled into it and was the low buyer right at $20 yesterday, then I sold the second 1/3 of my position exactly on the 61.8% retrace line. I sold the first 1/3 for a 59% gain, and the second for 100% gain. The third, and some, is on the house. That’s what I try to do every time, but it certainly doesn’t always work as well. Mid day it began to ramp and I was pretty sure the 50% retrace line would hold the advance and it did, subsequently collapsing down to the 61.8% level. It may rebound some tomorrow, we’ll see, but the easy money has been made for now.

The short term oscillators say that some rebound is possible tomorrow, it should be an interesting end of week. Overall I’m still thinking this is NOT the start of a major leg down, but it sure could be, and that’s why I did not go long at 900 today, although I know a lot of people did.

Hey, keep the big debt picture and math in the forefront of your mind. If you went long yesterday, your fiat dollars are going…